Private equity firms yesterday escaped the threat of tighter regulation and demands for closer scrutiny of pay and fees after a review rejected imposing public company-style rules on the industry.

The long-awaited report by City banker Sir David Walker said the private equity industry must open itself up to wider scrutiny and supply more detailed information about the financing behind deals such as the recent £11bn purchase of Alliance Boots by Kohlberg Kravis Roberts.

In a consultation document, Sir David proposed a code of conduct that he said would greatly increase the supply of information to employees, customers and other stakeholders of the firms private equity acquired.

The code should be voluntary, he said, though he hoped some 200 large private equity buyout firms based in London would adopt it. He expects to produce a final report in October ahead of a review by the Treasury of allegations that private equity firms have been abusing tax rules to enrich their senior executives and investors. A further review of the industry will be completed by the Treasury select committee in the autumn.

Unions said they were disappointed with Sir David's report and it would fail to alleviate the fears of workers at private equity-owned companies. The GMB and other unions have accused private equity firms of profiteering at the expense of workers and the taxpayer through unfair tax breaks, asset-stripping techniques and anti-labour practices.

The TUC's general secretary, Brendan Barber, said: "It will do little to reassure the staff of private equity takeover targets that the quest for short-term returns will not continue to threaten their jobs, pensions and working conditions."

GMB leader Paul Kenny, whose stinging criticism of the industry prompted the current reviews, said: "Sir David is obviously a well-intentioned person who has been forced to conclude that there is a yawning transparency and accountability gap to be filled. He proposes a voluntary code for the 'provisional wing' of capitalism, as he thinks it is too much to ask the multimillionaire elite who run this industry to conform to the 'burdens' of complying with the reporting requirements of 'the official wing' on the stock exchange."

Business leaders backed Sir David's report, with CBI director general Richard Lambert saying it provided a sensible framework. Wim Kolade, the chairman of the British Private Equity and Venture Capital Association, supported the report, saying it poses "real challenges" for larger buyout houses in particular.

However, he added that firms were concerned at being singled out for special treatment. "We agree that there needs to be more transparency, but there must also be a level playing field between private equity and other private companies. We will also want to make sure that the overall competitive position of the UK as a place to do business is not undermined."

Sir David said the industry needed to wake up to its responsibilities because it now makes up a large portion of the UK economy. It is estimated that one in eight employees in the private sector works for a private equity-owned company.

"The industry has come to be seen as needlessly secretive, feeding suspicion and in some quarters close to hostility," said Sir David, a former chairman of Morgan Stanley. He said greater transparency would show the public and other interested parties that allegations of financial engineering and profiteering were unfounded.

Companies such as Boots and the AA, which were bought by private equity funds, should provide reports on the type and level of debt on their balance sheets, and financial statements within four months of the year-end. Executives on the company board, including the general partner of the private equity firm entrusted with guiding the business, should have their identities made public.

But Sir David rejected giving details of the buyout vehicles used to buy companies or the secretive private equity partnerships behind the deals. He said it was "not in anyone's interest" for the agreements on fees and charges levied by the private equity bosses on investors in their funds to be made public. He rejected the idea of funding for a watchdog to ensure compliance with his new code, saying the media, trade unions and other groups would scrutinise their role.

Main points

Voluntary code for larger companies

Companies should ...

· issue an annual report and financial statements on a company website within four months of year-end

· give details on composition of the board

· provide chairman/chief executive statements and a board's operating review referring to the company's values and approach to its reputation